AM in Australia and the UK

Differences are good; understanding them helps us develop. So here, in a few words, I look at why  – and how – the UK and Australian approaches to Asset Management differ, by considering how they started – with water.  

NOTE: If you have early experience of these approaches please add your ideas in the comments section .

The UK

In the UK, asset management started with the privatisation of the water industry in 1989.  The rationale for privatisation was to increase the quality of the service and the route to this was seen to be by directed capital expenditure.  Ofwat, the regulator, set water prices high to enable the necessary investment and capital spending was the focus of Ofwat regulation.  Water companies’ asset management plans set out the rationale for their capital spending, new and renewal, to meet the needs of the regulator. Thus their focus on spending capital to improve service.  

Australia

In Australia, asset management also started with the water industry, but the impetus was very different. A long term modelling exercise for the water industry in 1983 made it clear that the cost of maintaining current water services would have to rise steeply, as assets aged and needed renewal.  The same modelling was then extended to all other infrastructure holdings in the State making it clear that the combined renewal demands of all agencies would, within 15 years, completely overwhelm the state’s funding ability. So, in 1987 the SA Parliament set up an Asset Management sub-committee and the Government created an Asset Management taskforce to consider ways of reducing the renewal costs to a manageable level by a combination of changes to planning, management, maintenance and financial policies and practices.

And so…

Thus, whereas the focus of asset management in the UK with the water industry (and later other industries),was how to fund capital renewal, the focus of asset management in South Australia, and then across Australia generally, was in how to avoid having to fund so much capital renewal. 

The difference between the two approaches became clear in 1995 when the South Australian Government, in an endeavour to create international export markets for its water industry skills and services, offered a 15-year management contract to an international company that could expand the state’s water industry exports and at the same time reduce management costs.  The Government made it clear that it was well satisfied with its current level of service and just wished to reduce cost, not increase standards.  However when the UK water industry companies  (and the French) were asked to demonstrate their asset management abilities, none could offer any evidence of actions taken to manage and reduce costs and, indeed, seemed somewhat perplexed by the question and focused only on what they had done by way of capital expenditure to raise services. During pre contract negotiations they consistently re-iterated their claims for capital enhancement and resisted discussion of cost reduction.  

These two different approaches to asset management have continued.  They both have strengths – and weaknesses. The Australian approach needs more attention to evaluating and prioritising capital projects (the main focus of Talking Infrastructure). The UK approach needs more attention to management cost reduction through better planning, maintenance and financial practices. 

Your views?

Publications

BUILDING AN ASSET MANAGEMENT TEAM

We now have a Publications section.  Our first highlighted publication is Building an Asset Management Team by Ruth Wallsgrove and Louis Cripps.  It’s available for Kindle for just a few dollars, and you can read it on eReaders, phones and tablets.

Building an Asset Management Team is a practical and lively guide for anyone who needs to do infrastructure asset management. It tackles who you need and why you need them.

Asset Management is increasingly important, legally mandated in many countries. ISO 55000 defines AM as the ‘coordinated’ activities of an organization to realize value from its assets. But longer term co-ordinated asset plans and strategies take real effort and skills. You can’t just think things better.

To succeed, you require good business understanding, broad technical knowledge of the assets, analytical skills, and great facilitation & communication…. Instead of searching for a platypus, it’s easier to build a complementary team.

Invaluable if you are developing a business case for setting up an AM team, considering where to locate the team in your structure, or how to attract and keep the right staff.

Proceeds of the sales of this book go to Talking Infrastructure.  We are a not- for-profit association and we do not charge for membership, so if you would like to support us – and support yourselves – please consider buying this book, and recommending it to your colleagues and asset management associations. Find 5 excerpts from this book by putting ‘AM Teams’ in the search bar.

Asset Management, the beginning, pt 2.

Photo by Alexandru Dinca from Pexels

“The farther back you can look, the farther forward you are likely to see” Winston Churchill

Until around 1996 the terms ‘Asset Management’ and ‘Strategic Asset Management’ were practically synonymous.  But with the increasing popularity of the term ‘Asset Management’ to describe a wide variety of activities, as described in Pt 1, there was a need for a term that could differentiate decision making from the doing so, in  January 1999, when the Asset Management Quarterly became fortnightly and thus needed a name change, I chose “Strategic Asset Management”, popularly known as SAM.

This was to stress that Asset Management wasn’t maintenance and reliability, or capital acquisition, or Treasury asset sales or many of the other associated activities, but rather what later became known (in ISO 55,000) as ‘the alignment of asset activities with the goals and objecitves of the organisation’   

The first issue of SAM, January 1999, explained the name change, and in doing so, focused on what differentiates asset management from what went before.

The real key to being strategic is where you focus your attention. If you focus on what you are doing you are carrying out an operational task; if you focus on how you are doing it, seeking to ‘tweak it’ or do it better, then you are engaged in a tactical activity. Both of these are necessary and important. However, they are not strategic. The strategic task is the one that focuses on the outcome, or the purpose….What constitutes a ‘better’ outcome, however, is not for the maintenance manager to decide. A ‘better’ outcome is one that moves the agency in the direction of its strategic vision.   

By way of illustration, take the construction of a new hospital. If the questions you are asking yourself are ‘what is the purpose of this new hospital; what needs are we providing for, should we be providing them or should they be provided by others, or should they not be provided at all; is a new hospital required or are there better means?’, then you are focussing on the outcomes – ie being strategic.

Asking yourself ‘should this construction be carried out as a ‘design-construct’, ‘build-own-operate’ or some other form of contract’ is asking tactical questions. If you ask ‘how do I ensure this construction comes in within time and budget and is of the right quality’ then you are engaged in an operational task.

Thus ‘Strategic’ is not the same as ‘Important’.  ALL aspects of asset management are important.”

In January 2014, the first international standard in asset management, ISO 55,000 was launched, and with this, we came to the end of the beginning of Asset Management.  No longer a novelty, a new-comer; Asset management arrived.

For What Happened Next see: AM – The third wave

Asset Management: beginnings, pt 1.

Photo by Alexandru Dinca from Pexels

In Australia, interest in asset management arose as the result of a series of eight parliamentary reports in South Australia in 1986/1987 modelling the likely cost and timing of renewing all the State’s major infrastructure assets.  

The projected costs were so large that they would have absorbed  the State’s total capital budget within the next 10 years if urgent action was not taken.  To address this problem, the recommendations in the reports covered possible planning and accounting reforms as well as engineering and maintenance changes.  

Following the Public Accounts Committee’s Reports,  a major SA Government Task Force was established that reviewed,  then agreed and  reinforced all the ideas presented in the reports.  This led to the formation of a Cabinet sub-committee to consider the issues raised, This provided high level impetus for the development of asset management. 

Further support was provided by the Auditors-General who were appalled to find that no public sector department. not even the statutory authorities, had decent asset registers and they made this a requirement. 

But the most significant change was that led by the Australian Accounting Standards Board.  At this time the board covered accounting standards in both the private and the public sectors.  The private sector used commercial standards with accrual accounting but the public sector used cash accounting. The board wanted to standardise on accrual accounting for both but was concerned about how this would be received. When it learnt that the Parliamentary Public Accounts Committee in South Australia was promoting the idea of accrual accounting to better understand and deal with infrastructure asset management, it was encouraged to push ahead. Within two years of the release of the final PAC report, the board had released Exposure Draft 50, the model of accrual accounting for local government.

The introduction of accrual accounting meant that local, state and federal government departments were required to move from their previous practice of simply recording annual cash in and cash out, to establishing balance sheets and recording, for the first time, the depreciated value of their infrastructure and other assets,

You might think that an accounting change would be of no interest to maintenance engineers.  Fortunately @Roger Byrne was not your ordinary maintenance manager.  He had already been in the habit of including economic and planning issues in briefing notes for his clients and he quickly seized on the opportunity this change presented for maintenance engineers.

It was these briefing notes that later provided the content for the first local government asset management manual which subsequently became the IIMM we all use today.  So through top down interest and bottom up capacity building, Australia took an early lead in the development of asset management.

The Parliamentary Reports created a lot of interest Australia wide. No other state was prepared, or even able, to duplicate the research for their own constituency but all infrastructure agencies recognised that the conclusions reached applied as much to them as it did to their South Australian counterparts.  The CSIRO’s Engineering and Construction division took an active interest, as did State Treasuries and the Auditors-General.

With these organisations,  I continued to develop the ideas that had arisen and, after advising governments, commissions of audit, and infrastructure agencies themselves, I created ‘The Asset Management Quarterly’ publication in 1994 to share with others what I was learning.  Then, in 1996, noting that lots of interesting things were being done in the name of asset management – but nothing was being documented, I launched the International Asset Management Competitions where the awards went to the best documentation of good asset management practice.  They ran between 1996 and 2000 and in 1998 AMQ International launched the world’s first asset management website with information on asset management freely available to all.

The term ‘asset management’ started to become very popular and everyone wanted to get in on the act.  One day, flying from Sydney to Canberra my seat companion described herself as an asset manager – on questioning it turned out that she was actually a real estate developer!  Once off the plane and into a taxi,  on the taxi radio I heard an advertisement for ‘asset management services’ – which turned out to be office cleaning!   Yes, asset management had become the buzzword  ‘de jour’.

To be continued….

A REQUEST

I am currently working on a book about our beginnings and would love to speak with anyone about their recollections pre 2014.

Please leave your name below and I will contact you.

To lead a village

Photo by Artem Beliaikinfrom Pexels

Mama

It was 2016 and I was engaged to train Auditors-General in the Pacific area in how to approach infrastructure performance audits. Their audit offices, like their countries, were not well resourced and they could ill afford to waste time and resources. It was important that they focused on the key issues and got their messages across to decision makers.  With my colleague, Kerry McGovern, I spent a week in Port Moresby. At the closing party I was honoured with the title ‘Mama’. I thought this was simply a recognition of my age, but no, “mama” meant a wise woman who leads a village. I was enchanted!  Who would not want to be wise and lead a village? And is this not what councils do?

So when approached last week to help the UN who are preparing a manual to assist local governments in under-developed countries struggling to adopt AM, I was happy to oblige. I spoke with Kerry and we prepared out ‘top dozen’, as follows.

What needs to be added?

  1. Build with your own labour and your own local materials. This will ensure you have the skills and ability to maintain what you build. 
  2. Learn to say ‘No’ when donors offer to build something for you with their labour, or to use imported materials when local alternatives are available. Always seek out alternative practices that use local. Welcome financial assistance if, and only if, it strengthens the ability of your own people in the construction, operation and maintenance of the new assets. That is necessary to ensure that the assets will remain functional.
  3. Prioritise. Do not accept ‘nice to have’ assets, such as sports stadia or entertainment centres, even as donations, if you have more critical requirements in power, water, roads or communications.  
  4. There is no such thing as a ‘free asset’.  Every asset costs you.  Not only does it require continuous operational costs such as lighting/heating/cleaning, but it will distract the attention of high level decision makers away from other issues.
  5. ‘Best practice’ and ‘high tech’ can be deceptive. The real ‘best practice’ is the one that you have the skills and abilities to apply over the longer haul.  The same for ‘high tech’.  The more complicated the technology the more chances are that something will go wrong and that you will be unable to fix it without outside help.  And that help may not be available when needed.
  6. Give your Auditors-General responsibility for auditing the performance of all public infrastructure for both effectiveness and efficiency – and fund and train them in the ability to do so.
  7. Be clear on what is to be achieved. Assist the Auditors-General by ensuring that all infrastructure proposals – whether with local or donated funds – state clearly the expected outcomes, in addition to cost and time.
  8. Identify who is going to operate the asset, who is going to maintain the asset – both scheduled maintenance, and unscheduled maintenance and the costs of enabling the operation and maintenance over the entire life of the asset. Then, with that estimate to hand (and preferably arrived at with input from the people who are going to do it) identify the source of funds to pay for all this.
  9. If using loan funds to pay for the asset, add interest and redemption payments to the operating and maintenance costs. Ensure you factor in the administrative costs of meeting lender requirements, including the cost of training staff to meet them.
  10. You may need to train workers to operate and manage the asset. Negotiate with the education department to find out what is involved in ensuring a supply of skilled people, able to operate and maintain the asset and administer loans / grants for the asset.
  11. Consider how the country is going to set up the support systems to enable the asset to function as intended.  For example, if a road, what vehicles will be using the road? where will people obtain these vehicles? how will they be maintained and operated? Who will pay for that? What income streams will cover the costs of the asset PLUS using the asset in your country.
  12. Plan for the safe treatment of waste generated by the asset (in both construction and use – eg. disposal of old cars, mitigation of petrol fumes, unused bitumen, water run off, etc.)

Your suggestions? (add in the comments box below)

Two more topics have been added to our Tuesday afternoon workshop agenda

Tuesday afternoon (30 july), in addition to the topics listed in our earlier post, we will also have the following, lead by Sally Nugent, former CEO of the Asset Management Council, now Director, Sallyent Pty Ltd, and currently working on a new book on asset management, culture and leadership,

1.  How and What to ask: do you know what decision model you are using for your project or plans, and what questions to ask? For example

  • Why is it important to make decisions promptly? (The Consequences Model)
  • How do we identify the ‘next big thing’? (The Hype Model)
  • Why does the printer always break down just before a deadline? (The Results Optimisation Model)

Reference The Decision book Fifty models for strategic thinking

2.   Have you considered the context of your project or required solution with ‘open systems’ in mind. How does context influence the questions you ask?

Margaret Wheatley (2006, Leadership and the new science: discovering order in a chaotic world) points out that much of the current thinking in management science is based on Newtonian mechanics – an approach primarily based on reductionism – the best way to understand the whole is to break it up into smaller parts and understand those individual parts.  The premise being that if you understand how the heart works and the liver works, you will understand the entire body.  The problem is that two critical elements are missing

    1. understanding the individual parts doesn’t provide any understanding of how the parts interact.
    2. very few organisations operate in an environment where they are closed off from external factors.

Also

I am also hoping to add a discussion on real options analysis.

So if you find sitting and listening to others in conferences a bit passé, join us on Tuesday afternoon, where you get to take part in the entertainment!

Sign up in the comments, or better, write me at penny@TalkingInfrastructure.com

And I will send meeting details.

For the sake of our children

Infrastructure spending is often justified on the grounds that we are ‘building for the future’. If we truly believe this, and if we are concerned to provide a safe and prosperous world for our children to inherit, then we are running out of time.  This is the conclusion of “No Time for Games: Climate Change and Children’s Health’ by Doctors for the Environment Australia where they describe the many ways in which periods of excessive heat, disease carrying flood waters, storm events and rising sea levels are seriously impacting the physical and mental well being of our children.  This is not a hypothetical. It is happening now.  And the recent NEG decision to support coal under the guise of providing ‘reliability’ for renewables is, unfortunately, symptomatic of the hypocrisy of the time.

We can regret the loss of leadership as David Shearman did in his excellent article in the ABC Adelaide news this morning “Climate change is World War III, and we are leaderless” and urge our elected members to do more, and we should do this.

But maybe we need to DO more?  Maybe in our leaderless world we need to take leadership into our own hands?   In the past we have tended to leave large scale infrastructure decisions to others.  Perhaps this now needs to change?   No Time for Games has this to say about Infrastructure:-

Infrastructure and risk reduction

‘Protecting children’s health also requires risk reduction in sectors other than health such as housing, agriculture, urban planning and transportation. Improvement in urban and regional planning design such as relocation away from areas at risk from natural disasters or sea-level rise, or better housing design to reduce heat impacts, are examples of reducing the risk of climate health impacts to children.

Reducing socioeconomic disadvantage in children and improving baseline health, food security and education are fundamentally the best form of climate change adaptation due to their role in making children and families more resilient and better prepared for the environmental risks brought by climate change’

We can all have a say in promoting these changes, directly where we are able, and in voting for measures which improve them and against those which don’t.

That the increasing health effects of climate change disproportionally affect children challenges the most fundamental call of humanity, to nurture its young.
Failure to act is a major intergenerational injustice

My thanks to Ian Spangler for drawing my attention to this.

Your Comments now doubly important

I hope that you have enjoyed thinking about Doug Bartlett’s Four Post series on ‘words matter’.  So why not grab yourself a cup of coffee and sit down and write a comment?  If you agree with the interpretation that Doug has adopted, do tell him, and tell us why.  Equally, if you would have interpreted the words (and the challenge that goes with them) differently, tell us that, and why. If you have useful examples, add them.

There is plenty of scope here for comment and now there are TWO reasons for doing so.

  • As a thank-you to the blog poster, a courteous acknowledgement.
  • As potential for ideas, topics and speakers for our coming Podcast series

If you have not yet caught up with our news on our coming podcast, see our Weekly Roundup,  Sunday July 1st.  –  and watch for updates in our coming Sunday round-ups.

Note:

Latest comments show up in the right hand side bar here on the front page, as well as being attached to the post itself.   So add comment to any post. It doesn’t have to be the most recent to be seen.

Risk and Uncertainty

The third in our series on ‘words matter’ by Douglas Bartlett, Manager Asset Planning, City of Kalamunda.  Do you agree? As usual, Doug welcomes your responses and alternatives.

Grenfell Tower Fire June 14

Grenfell Tower Fire June 2017

Risk management, when taken to its root cause, is about the potential harm to an individual. But not just any individual, it is the harm to the person assessing the risk. We are all, by nature, selfish and will always assess and measure things against ourselves (no matter how gracious and service oriented we may be). If I assess the risk of a Bike Plan failing to deliver its outcomes, I can talk about how the community won’t get the health benefits or maybe safety improvements that it needs, but whether these things happen or not is irrelevant to me unless I (personally) can be affected by it. I can be affected by getting blamed for the failed outcomes, or by losing reputation. So the core perception of risk comes down to how the individual perceives the threat of harm.

Risks are ‘managed’ by introducing practices that are thought to decline the level of risk. Risks (in terms of AM planning) are typically recorded only for significant events, and treatments are also typically not analysed in detail. So the activity of risk management in AM may suffer from a lack of detail, and also may suffer from the assumption that management practices will manage the risk.

In my job, I am uncertain on a day to day basis. I am uncertain when I reply to a request for a new path, because I can’t be sure if the path is really needed. I am uncertain when a developer wants to discharge stormwater into the drain pipe, because despite the calculations and standards there are a huge number of assumptions being made. From an analytical and statistical perspective, I am uncertain most of the time.

So which term is more useful? In consideration of our selfish natures, is it more harmful to me to be uncertain or to try to manage risk? I am uncertain on a day to day basis and it does not appear to be causing me harm. By implication then I won’t try to change practices where they appear to be working (no matter how uncertain they may be). So, I think Risk is the better term as it will drive a reaction from the individual.